Insurance Defense Reservation Of Rights
It is possible that an insurance company can be required to pay for the policyholder s defense even if it is not required to pay for any eventual liability.
Insurance defense reservation of rights. A defense under a reservation of rights presents a potential conflict of interest between the insurer and the insured because the insurer may have a greater interest in developing facts establishing non coverage rather than in defending against the insured s liability. 5 however it is essential the carrier ensure that it issues the initial reservation of rights letter within the initial 30 day period. If a coverage defense is available and the insurer provides a statutory reservation of rights the claims administration statute will trigger an obligation for the insurer to retain independent counsel which is mutually agreeable to the parties 14 therefore the insurer must ensure that there is mutual assent between the insurer and the insured. A reservation of rights by a liability insurance company is an expression of the insurer s agreement to defend its policyholder with the limiting condition that it does not waive any right to later deny coverage under the terms of insurance contract.
Insurance companies often send a reservation of rights letter because the duty to defend is broader than the duty to indemnify. A reservation of rights is a term of art in insurance designed to allow an insurer to provide a defense to its insured while still preserving the option denying coverage. Reservation of rights an insurer s notification to an insured that coverage for a claim may not apply. A reservation of rights is a facet of insurance law that allows an insurance company to enter into a defense of an asserted policy claim on a tentative basis.
In some cases courts have sided with an insured against an insurance company because the reservation of rights letter didn t provide the policyholder with enough of a justification as to why under the policy and according to the facts of the case the insurer might deny coverage. Dowd 858 s w 2d 307 308 mo. Such notification allows an insurer to investigate or even defend a claim to determine whether coverage applies in whole or in part without waiving its right to later deny coverage based on information revealed by the investigation. Many insurance policies include a clause stipulating that the insurance company will provide the policyholder a defense should the policyholder ever be sued based on a covered claim.
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